2021: A Pension Odyssey for Mexico’s first wave of Afore Retirees?

By Redacción MXN Thursday, October 6, 2016 comments


In 2021, Mexico’s first generation of AFORE retirees will receive their individualised pension benefits. Over 10 million retirees aged 65 and over will enter into retirement.


However, owing to a lack of additional voluntary contributions that workers could have made via private pension schemes, the downside is that most of this generation of retirees will receive only 28% of their final salary.  





Until 1997, Mexico’s pension system was run by IMSS or ISSSTE, depending on whether an employee worked in the public or private sector.  In 2021, over half of Afore pensioners will be eligible to become fully retired (55.4%), more than a third (33.6%) will become age obsolete to employers and a lesser proportion (5.7%) will stop working due to a work related illness or accident.


For many economists, the financial situation awaiting Mexico´s first Afore generation in 2021 is concerning. Since they opted out of a state pension in 1996, they will be required to depend solely on the Afore savings plan. 


Nowadays only 33% of Mexico´s economically active population contribute to the mandatory social security system.  That is to say, seven out of ten Mexican workers do not have basic state pension coverage, while the remaining three have an individual Afore but will face living on less than a third of the income they earned during their working years.



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Neil Emberson, managing director of financial consultancy KNG International Advisors warns; “we will see several big changes from 2021 onwards. It is likely that the age of retirement will be extended beyond 65 years, to allow workers longer to save for retirement.  We will also see a generation of ‘workaholics,’ particularly millennials who are not setting enough money aside for their retirement.  Besides this we will also see a larger volume of self-employed workers.”


The contribution to Afore is 6.5% of an employee’s monthly salary. This accounts for only 1.125% of monthly capped base salary compared to 8% which is the average contribution made by employees in OECD member countries.


Emberson adds, “In 2021, we are anticipating a huge drop in living standards for these folks when they reach retirement. From that point onwards, they may have a lot of remaining years to live. The inherent risk I see is that the individuals Afore savings account will unlikely last long enough to provide enough resources for all of his remaining years.   An additional private pension plan is the difference between retiring with dignity or surviving retirement and making do.  There is still time to act, but it has to be now”, he said.



12257418726_791491b596_oOriginal Image: “pension savings plan” by SalFalko, used under CC BY-NC 2.0 license, via Flickr.



In Mexico only 1.76 million out of over 5 million companies offer a contributory private pension as part of their benefits program. Furthermore, only 1 out of every 10 workers that contributes to IMSS receives any additional pension benefit during their working years to supplement their state pension.


Private pension plans increase workers’ pensions by up to 40%. Some plans may also contain a life insurance component. By offering this benefit, companies engender greater loyalty and reduce turnover and the amount paid by the company is tax deductible”, confirms Emberson.


 “The occurrence of employer programs not only alleviates the situation of workers receiving pensions equal to less than 30% of their earned income, it also helps to foster a saving habit”, he concluded.